The truth of the matter is…regulation is changing
As the 2013 IISA conference winds down, it has been a conference which has dealt with the industry’s major issues. All stakeholders were given a chance to voice their concerns and describe the industry as they see it.
The overall feeling is that there is potential for unprecedented growth for the industry, provided that certain challenges are resolved. One of the biggest challenge is that the regulatory environment is going through uncertain times and the industry is waiting with baited breath to see what the effects of this uncertainty will be.
Over regulation killing the industry?
The overwhelming feeling is that the industry is quite possibly going through a stage where it is over regulated. There are concerns that National Treasury and the FSB are possibly implementing laws which don’t necessarily include input from all parties in the industry.
The was most certainly the view of Professor Robert Vivian who voiced his concerns about the current path he feels industry regulators are taking.
“If we carry on down the path we are currently going, we are heading towards the nationalisation of regulation of the insurance industry whereby legislation will be put in place and the private sector won’t have much leverage to change it,” says Vivian who adds that a case can be made for the regulation being to draconian.
“Thousands of years of mercantile law tells us that the industry operates best when governed by a stable regulatory framework. The current framework is continuously shifting and the industry cannot continue in this manner,” says Vivian.
Keep calm…It’s under control
While there is this feeling of concern and uncertainty in the market, Jonathan Dixon, deputy executive officer at the Financial Services Board, doesn’t feel like the industry is over regulated and that they have an understanding of the industry.
“Through our discussions with industry, we feel that these concerns do not exist. The South African Insurance Association is working closely with the FSB and National Treasury to ensure that regulation is as appropriate and as inclusive as possible. And we have come a long way in developing this regulation,” he said adding that it is not only about regulation but also about governance and risk management which is something that ball businesses should be doing as a matter of course.
However, Dixon does acknowledge that there is currently a lot of regulatory change in the industry and he can understand the uneasiness within the industry regarding that.
Areas of concern
While there is a lot of concern in the market regarding binder agreements and the roll out legislation which regulates it, the two main areas of concern are solvency assessment and management regime (SAM) and treating customers fairly (TCF).
Dixon points out that the FSB is not trying to slow the industry down with SAM, on the contrary, the FSB feels that SAM will lead to better policy holder protection.
“There are some concerns about SAM, but it’s about knowing your risks and managing them correctly. It’s about understanding , so companies will struggle if they don’t understand their customer base as well as their needs and challenges. For companies which haven’t been conducting business in an acceptable manner in the past, there will be a significant adjustment period.”
While SAM is being seen as this unmovable force which has the potential to wreak havoc in the industry, there are ways to work around it. Dixon adds that as an insurer, you can re-insure the risk. The FSB is also introducing a tiered approach which will make SAM accessible to all companies in the market. The final way to work around the challenges presented by SAM is operating under the guidance of a licenced insurer following a underwriting management agency model.
TCF is also a major concern for the industry, but Leanne Jackson who heads up TCF at the FSB feels that these concerns are unjustified. “Through my extensive engagement with the industry, the outlook is that the industry is receptive to TCF and that they appreciate the value it can bring to their company as well as the industry,” says Jackson.
“We have adopted six specific outcomes from the TCF program in the UK, and if companies are unsure of their actions then they must measure their deliverables according to how they measure up against these outcomes. If companies are acting in an unscrupulous manner, the ‘touchy…feely’ element of TCF that certain sectors of the industry are worried about will resurface. TCF is not about over regulation, it is a tougher version of regulation because there is no space to hide behind wording or legal interpretation,” says Jackson.
Editor’s Thoughts:
While the FSB is reporting that the industry is being regulated in the right way, the industry does not exist in a vacuum. There must be an element of concern within the industry and if the FSB do not resolve these concerns, the uncertainty which the industry is currently experiencing will be compounded.
The FSB, SAIA and National Treasury are doing their best to establish an operating framework which will entrench the industry as the leading industry on the continent and one which can compete with established markets such as the US and the UK. However, this regulation needs to be inclusive and needs to address every concern in the industry, no matter how small it is.
How do you feel about the regulation which governs the industry? Is the industry over regulated? Is the FSB moving in the right direction in terms of adopting inclusive legislation? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughtsjonathan@fanews.co.za.
Comments